Nordic Semiconductor ASA's (OB:NOD) 26% Cheaper Price Remains In Tune With Revenues

Nordic Semiconductor ASA (OB:NOD) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. Longer-term shareholders would now have taken a real hit with the stock declining 4.6% in the last year.

Even after such a large drop in price, you could still be forgiven for thinking Nordic Semiconductor is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 4.3x, considering almost half the companies in Norway's Semiconductor industry have P/S ratios below 2.1x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for Nordic Semiconductor

What Does Nordic Semiconductor's P/S Mean For Shareholders?

Nordic Semiconductor has been struggling lately as its revenue has declined faster than most other companies. Perhaps the market is predicting a change in fortunes for the company and is expecting them to blow past the rest of the industry, elevating the P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Nordic Semiconductor.

How Is Nordic Semiconductor's Revenue Growth Trending?

In order to justify its P/S ratio, Nordic Semiconductor would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a frustrating 36% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 17% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 24% each year during the coming three years according to the twelve analysts following the company. With the industry only predicted to deliver 18% per annum, the company is positioned for a stronger revenue result.

With this information, we can see why Nordic Semiconductor is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Nordic Semiconductor's P/S?

A significant share price dive has done very little to deflate Nordic Semiconductor's very lofty P/S. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Nordic Semiconductor's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 1 warning sign for Nordic Semiconductor that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.